Government cracks down on pyramid schemes, shares in Herbalife and Nu Skin tumble – China’s latest business and technology news

Multi-level marketing (MLM, 传销 chuánxiāo) is a business model where a company relies on its own customers to sell its products. The customers make a commission not only on their own sales, but also on sales of their own customers who are recruited as salespeople. This is essentially the same business model as pyramid and Ponzi schemes, and indeed, Herbalife — one of the world’s largest MLM companies — has long been called a pyramid scheme by influential investor Bill Ackman.

American, Japanese, and Taiwanese MLM companies first entered the Chinese mainland in the 1980s, but have always had a difficult relationship with the government. A 1998 regulation explicitly banned the MLM business model for economic, social, and tax reasons, but companies found legal workarounds, and revisions to the law have allowed companies to do “direct sales,” which still uses customers as salespeople but restricts the way they can be compensated. However, the laws have not deterred entrepreneurs and con men.

This week, China Dailysays that “a notice was issued on Monday by four ministries to crack down on gangs operating pyramid schemes.”

Reutersreports that shares in American MLM firms Herbalife, Nu Skin Enterprises, and USANA Health Sciences — which all have significant operations in China — “tumbled in high volume” after the announcement.

In Caixin, influential editor-in-chief Hu Shuli 胡舒立 writes in support of the crackdown and says that “the recent deaths of three young people allegedly lured into pyramid-sales scams in Tianjin and Hubei Province have shown yet again the evil side of the illegal networks that are essentially ‘business cults.’”

Mobile phonesBeijing opens whole subway system to mobile phones / TechNode All Beijing subway lines will support payments from mobile phones equipped with Near-Field Communication (NFC) technology, avoiding the need for passengers to buy physical tickets. Apple iPhones are not compatible with the system, but TechNode says, “Apple may support the public transport card function for iOS 11, which is said to be launched in October.”

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Rabbits in colorful cages for sale at a temple fair near Lianhuachi Park in Beijing in 2010 during the Spring Festival celebration. At these fairs, which are popular during this time of year, vendors sell food and sometimes pets.